Definitive Guide to Hiring in
Sri Lanka

Hiring in Sri Lanka

Hiring employees compliantly in Sri Lanka means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Sri Lanka so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Sri Lanka; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Labor Laws in Sri Lanka

Employment laws in Sri Lanka are uniquely suited to the country’s way of life, and crucial to understand if you want to employ local talent in this country. Get the details on Sri Lanka employment laws and Sri Lanka policies here.

Employee Probation Period

• The period of probation is as follows: -
  • 1 year for supervisory or highly skilled employees
  • 6 months for other employees (may be extended for an additional 3 months)

Annual Leave in Sri Lanka

• The employee is permitted to 14 days of annual leave complete with the full salary for each concluded year of service. 
• Employees are not entitled to annual leave on the first year of employment. 
• Annual leave for the second year of employment is accrued based on the date the employee joined service.

Holidays in Sri Lanka

Maternity Leave Sri Lanka

• The duration of maternity leave is 12 weeks (84 days) excluding weekly holidays, Poya days and statutory holidays.

Paternity Leave Sri Lanka

• There is no provision for paternity leave in the labor & employment laws of Sri Lanka.
• In Sri Lanka, paternity leave for the state sector is limited to three days.

Sick Leave in Sri Lanka

• In accordance with the Shop and Office Act, every worker certified by a medical practitioner is entitled to a paid sick leave (sickness benefit) for a period of 07 days (in a 12-month period) for private business, ill-health or any other reasonable cause. 
• These are generally known as casual leave.

Working Hours in Sri Lanka

• In accordance with the Shop and Office Employees Act, normal working hours are 9 hours per day and 45 hours per week.
• The Factories Ordinance states that the normal working hours must not exceed 09 hours per day, exclusive of intervals allowed for meals and rest.
  
  

Overtime in Sri Lanka

• If a worker works beyond the stipulated working hours, he/she is entitled to an overtime pay that is 150% (1.5 of X) of the rate of his ordinary pay. 
• The overtime hours in a week cannot exceed 12 hours.

Termination of Employment in Sri Lanka

Whilst there is no specific definition in either the TEWA or the IDA of what constitutes justifiable cause, case law has identified that the following types of conduct will constitute grounds for justifiable cause to dismiss on disciplinary grounds (these are not exhaustive):

• • Persistent and unauthorized absence, or late arrival, or early departure.
  • Gross negligence in the discharge of duties.
  • Insubordination.
  • Abusive/unruly behavior.
  • Dishonesty.
  • Theft.
  • Intoxication whilst at work.

• An employer's loss of confidence in an employee has also been held to be a sufficient ground for dismissal, provided that it is coupled with a specific ground of misconduct as set out above. 
• Even where a loss of confidence cannot be linked to a specific ground of misconduct, it is often pleaded by employers to persuade adjudicating forums that reinstatement is not a suitable remedy.
• Notice periods, or payments in lieu of notice, for dismissal are typically stipulated in the contract of employment. 
• However, where the provisions concerning notice periods, or payments in lieu of notice, are exercised by the employer during the course of an unjust dismissal, the employee can challenge that termination on the basis of unjust dismissal.
• In the case of a dismissal on disciplinary grounds, the Termination of Employment of Workmen (Special Provisions) Act No 45 of 1971 (TEWA) makes it mandatory for the employer to inform the employee, in writing, of the reasons for the dismissal before the expiry of the second working day after the dismissal has taken place.

Notice Period in Sri Lanka

• The law requires termination notice before terminating services of an employee.
• However, the law does not deal with individual dismissals rather it talks only about retrenchment (collective dismissals).
• Workers may be retrenched only after giving at least one month's notice.
• A worker is eligible for this one-month notice only after one year of service.

Severance in Sri Lanka

• The quantum of compensation that may be awarded by the Commissioner of Labor (Commissioner) as a result of a successful application for unjust dismissal under the TEWA is regulated as follows, depending on the employee's length of service:

• Employee with one to five years' service: 2.5 months' salary paid as compensation for each year of service competed (capped at 12.5 months' salary).
• Employee with six to 14 years' service: 2 months' salary paid as compensation for each year of service competed (capped at 30.5 months' salary).
• Employee with 15 to 19 years' service: 1.5 months' salary paid as compensation for each year of service competed (capped at 38 months' salary).
• Employee with 20 to 24 years' service: 1 months' salary paid as compensation for each year of service competed (capped at 43 months' salary).
• Employee with 25 to 34 years' service: 0.5 months' salary paid as compensation for each year of service competed (capped at 48 months' salary).

• The maximum severance payment that can be made under the above formula is LKR1.25 million.

Sri Lanka Salary and Wages

13th / 14th Month Salary in Sri Lanka

• No
• There is no statutory requirement to pay the 13th or the 14th month salary.
• There is no evidence that it is customary to give bonuses.

• Employers and employees are required to contribute specified percentages (employer 12%, employee 8%) of each employee's monthly emoluments/salary to the Employees Provident Fund (EPF) established by the government. 
• Alternatively, employers and employees can contribute to certain private provident funds approved by the labor authority. 
• Employers are also required to contribute a specified percentage (currently 3%) of each employee's monthly emoluments/salary to the Employees Trust Fund established by the government.

Immigration Sri Lanka

• All foreign nationals must obtain visas (on-arrival visas or visas obtained prior to arrival) to enter Sri Lanka. 
• Foreign nationals intending to work in Sri Lanka should obtain residence visas and work permits.
• Residence visas must be obtained by all foreign nationals intending to work in Sri Lanka. 
• This type of visa is normally issued for one year and is renewable annually on the payment of LKR20,000. 
• Applicants for residence visas should obtain entry permits from Sri Lankan missions in their home countries. 
• They must submit applications for residence visas within one month after their arrival in Sri Lanka under entry visas. 
• The approval of the relevant ministry that governs a particular activity or the BOI, as applicable, is critical in obtaining a residence visa. 
• For example, if a foreign national wishes to pursue activities in Sri Lanka connected with the power and energy sector, the Sri Lanka Ministry of Power and Energy must approve the visa.
• The Department of Immigration and Emigration normally abides by the recommendations of the relevant ministry in deciding whether to grant a residence visa. 
• With respect to employment in companies approved by the BOI, the BOI must recommend a residence visa for it to be issued.
• The BOI refers the application with comments to the Ministry of Defense and then to the Department of Immigration and Emigration, which issues a visa. 
• Employers are responsible for applying for residence visas for expatriate staff. 
• The Resident Guest Scheme is open to any foreign investor or foreign professional who wishes to contribute to the economic and sociocultural enrichment of Sri Lanka. 
• Five-year visas are issued to individuals qualifying under the scheme. 
• Application forms are available from the BOI and from any of the Sri Lankan missions abroad.
• Individuals applying for visas under the Resident Guest Scheme must undergo a medical examination prior to the visas’ confirmation.

Mandatory Benefits in Sri Lanka

• These are mandatory benefits as postulated by law
• These include annual leave, public holidays, sick leave, maternity leave, overtime pay, notice period, and severance pay
• Statutory benefits also include social security benefits

Payments And Invoicing

• A tax year is any period of 12 consecutive months commencing on 1 April of one calendar year and ending on 31 March of the following calendar year.
• An individual is required to file a return of income in a prescribed format (with financial statements and supporting schedules, if applicable) not later than eight months after the end of each year of assessment (on or before 30 November immediately following the end of the tax year).
• Spouses are taxed separately on their individual incomes.
• Under the pay-as-you-earn (PAYE) tax system employers are required to deduct from the monthly emoluments of each employee income tax computed on the basis of statutory tables provided by the tax authority. 
• In general, where employment is an individual's only source of income, the tax deducted by the employer and paid to the tax authority is the final income tax due from the employee.
• Individuals with income from other sources other than final withholding payments on which tax has been deducted are entitled to set off the annual income tax deducted by the employer from the overall income tax payable. 
• Under Sri Lanka's pay-and-file system, individuals other than employees are required to pay tax in instalments on or before 15 August, 15 November, 15 February of the tax year, and 15 May immediately following its end.

Payroll Accrual in Sri Lanka

Country Accruals Additional Information

Description

Employers and employees are required to contribute specified percentages (employer 12%, employee 8%) of each employee's monthly emoluments/salary to the EPF established by the government. Alternatively, employers and employees can contribute to certain private provident funds approved by the labour authority.

Payroll Accruals Additional Information

Accrued Benefits in Sri Lanka

Why use Global Expansion to hire in Sri Lanka

Establishing a branch office or subsidiary in Sri Lanka can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Sri Lanka labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Sri Lanka law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Sri Lanka. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Sri Lanka Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.